Fannie, Freddie update representation, warranty policies

November 21, 2014

WASHINGTON (11/24/14)--Fannie Mae and Freddie Mac have announced changes to their representation and warranty frameworks--changes designed to provide lenders with more certainty involving potential repurchase risk.

The changes relate to the framework's life of loan representations and warranties for misstatements, misrepresentations, omissions and data inaccuracies.

"With this clarity, lenders should have greater confidence in lending to Fannie Mae's full credit standards and making mortgages available to more borrowers," said Andrew Bon Salle, executive vice president for single-family underwriting, pricing and capital markets at Fannie Mae, in last week's announcement.

The current framework allows for lender relief on representations and warranties if:

The borrower has made 36 months of timely payments on most loans;

The borrower has made 12 months of timely payments on Home Affordable Refinance Program or Refi Plus loans; or

The loan has achieved a successful full-file quality control review by Fannie Mae.

The changes provide specific requirements under which a repurchase could be sought after relief is granted. These include a significance test for post-relief date repurchases related to misrepresentations or data inaccuracies.

"Concerns about when a mortgage loan might be subject to repurchase, along with other market factors, have contributed to increased credit overlays that drive up lending costs and reduce access to credit," he said. "Clarifying these life-of-loan exclusions will not impact the credit standards of Fannie Mae or Freddie Mac, but they will provide greater certainty for all parties, facilitate greater liquidity and increase access to credit without compromising safety and soundness.

According to Fannie Mae, this is intended to clarify that the agency will only seek repurchase on these loans if it would not have purchased the loans had it known the accurate information at the time of delivery.

The revision to the representation and warranty framework states that Fannie Mae can only seek repurchase of a loan if it determines the failure to comply would impair its rights under the note or mortgage or result in direct liability by Fannie Mae under the law, or if the lender may have violated a law or regulation that is specifically listed in the announcement.

Freddie Mac made similar changes to its representation and warranty framework and released its own bulletin with the complete list of changes.

Does your CU offer or plan to offer cannabis banking services?

Champion of America’s Credit Unions

Credit Union National Association is the only national association that advocates on behalf of all of America’s credit unions. We work tirelessly to protect your best interests in Washington and all 50 states. We fuel your professional growth at every level and champion the credit union story at every turn.